Centralization and Decentralization

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Changing the decision-making authority and the corresponding organizational structure.

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Centralization and DecentralizationCentralization and Decentralization? Description

An organization has to make strategic and operational decisions. Where and by whom should these decisions be made? And: how should the organization structure be adapted? Centralization and Decentralization are two opposite ways to transfer decision-making power and to change the organizational structure of organizations accordingly.

 

Centralization:

  • Definition: The process of transferring and assigning decision-making authority to higher levels of an organizational hierarchy.
  • In a centralized organization, the decision-making has been moved to higher levels or tiers of the organization, such as a head office, or a corporate center.
  • Knowledge, information and ideas are concentrated at the top, and decisions are cascaded down the organization.
  • The span of control of top managers is relatively broad, and there are relatively many tiers in the organization. Compare: Fayol.

Decentralization:

  • Definition: The process of transferring and assigning decision-making authority to lower levels of an organizational hierarchy.
  • In a decentralized organization, the decision-making has been moved to lower levels or tiers of the organization, such as divisions, branches, departments or subsidiaries.
  • Knowledge, information and ideas are flowing from the bottom to the top of the organization.
  • The span of control of top managers is relatively small, and there are relatively few tiers in the organization, because there is more autonomy in the lower ranks.

Three Forms of decentralization

  • Deconcentration. The weakest form of decentralization. Decision making authority is redistributed to lower or regional levels of the same central organization.
  • Delegation. A more extensive form of decentralization. Through delegation the responsibility for decision-making is transferred to semi-autonomous organizations not wholly controlled by the central organization, but ultimately accountable to it.
  • Devolution. A third type of decentralization is devolution. The authority for decision-making is transferred completely to autonomous organizational units.

Strengths of Centralization. Characteristics

  • Philosophy / emphasis on: top-down control, leadership, vision, strategy.

  • Decision-making: strong, authoritarian, visionary, charismatic.

  • Organizational change: shaped by top, vision of leader.
  • Execution: decisive, fast, coordinated. Able to respond quickly to major issues and changes.
  • Uniformity. Low risk of dissent or conflicts between parts of the organization.

Strengths of Decentralization. Characteristics

  • Philosophy / emphasis on: bottom-up, political, cultural and learning dynamics.
  • Decision-making: democratic, participative, detailed.
  • Organizational change: emerging from interactions, organizational dynamics.
  • Execution: evolutionary, emergent. Flexible to adapt to minor issues and changes.
  • Participation, accountability. Low risk of not-invented-here behavior.
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